Bumpy stocks may cool IPO appetites

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Ally, the largest IPO this year, priced its shares at $25 each. GM’s former financing arm fell 4 percent in its premiere Thursday.

By Steve RothwellAssociated Press
April 15, 2014

NEW YORK — A hot market for initial public offerings may soon face a cooler reception from investors.

IPOs are having their best start to a year since 2000. Eighty-nine companies have raised $19 billion through sales of new stock so far in 2014. But demand for more offerings depends largely on the health of the broader market, and after last week’s sell-off, the clamor from buyers may quiet down.

Auto financing company Ally Financial and hotel operator La Quinta Holdings had lukewarm receptions for their IPOs last week.

La Quinta priced its shares at $17 each, lower than its expected range of $18 to $21, which suggested less demand. The stock rose slightly in its debut Wednesday then fell the next two days to end the week below it original offer price.

Ally, the largest IPO this year, priced its shares at $25 each, the bottom of its expected range of $25 to $28. The former financing arm of General Motors fell 4 percent in its premiere Thursday, closing at $23.98. On Monday, both stocks remained below their IPO price.

Some companies delayed their IPOs last week as the stock market turned bumpy. Paycom Software, a human resources software company, and City Office REIT, a real estate investment firm for office properties, were expected to launch. But their IPOs didn’t happen, and the companies are expected to try to complete them this week.

Andy Sanford, head of Wells Fargo Securities’ equity capital markets group, who helped launch La Quinta, said that companies will have to lower their expectations on prices, although he thinks there is still good demand for new stocks.

‘‘IPOs have been a place where investors have been able to get higher returns than the broader market,’’ Sanford said.

La Quinta and Ally were among 10 companies that raised $4.2 billion through IPOs last week. Another 12 companies are scheduled to launch stock this week.

The IPO market started recovering last year after being in the doldrums following the financial crisis and Great Recession. The Standard & Poor’s 500 index surged almost 30 percent in 2013. That helped boost the appetite for new stocks as investors looked for ways to beat the market. Twitter, hotel group Hilton Worldwide, and sandwich-shop chain Potbelly were some of the big-name IPOs in 2013.

Companies raised $61.9 billion through stock sales on US exchanges last year, the best for IPOs since 2007. Prior to that, the top year was 2000, when firms sold $104.5 million of stock at the tail end of the internet bubble.

Investors have been drawn to the market because it gives them more bang for their investment buck. Stocks have looked more attractive than bonds, after bonds lost 0.4 percent last year, according to data from Barclays.

The appetite for IPOs is also being driven by established companies buying back their own shares just as demand for stocks is rising, said Russ Koesterich, chief investment strategist for BlackRock. That buying has reduced the overall availability of shares in the market.

Companies in the S&P 500 spent $475.6 billion on buying their own stock last year, an increase of 19 percent from 2012, according to data from S&P Dow Jones indexes. The strong pace has continued this year. Companies spent $129.4 billion on buybacks during the first quarter.